Looking for a Business Loan? Here are 5 Things Your Bank Will Ask You

business financing

For many businesses owners, a simple loan is the best way to inject cash into the business, since it doesn’t require you to give up any equity. Whether you’re looking to invest in a new property, purchase a commercial vehicle, or simply need a line of credit to support capital needs like purchasing inventory and managing cash flow, your bank or credit union is probably your first port of call.

That said, just like any investor, your bank or credit union will want to know that your business is a secure investment. Whether you need capital funding for new projects or want to purchase a new piece of equipment or property, it’s a good idea to prepare for the inevitable questions you’ll be asked and put together a business plan before submitting your application. Your annual revenue and credit score—a minimum of 680—will also play a big part in whether your application is approved, so check that you’re likely to qualify before proceeding. If those aspects look promising—or at least not disqualifying—you’re on to the next step.

The Business Loan Interview

That said, there’s more to obtaining a business loan than just filling out paperwork and supplying financial information. You’ll also need to speak with a loan officer —in person, not over the telephone. When you come in for your appointment, make sure to bring all of your documentation along. If your business is unusual or there are gaps in your documents, also expect some additional questions. Most business owners, however, will encounter a standard set of questions from the loan officer, so it’s wise to prepare yourself as much as possible beforehand. Good preparation and excellent documentation will give you confidence and greatly improve your odds of success. Therefore, it pays to familiarize yourself with some of the typical questions you’ll be asked in the interview.

1. Why do you need a loan?

This simple question requires a straightforward answer, and your reply may dictate whether or not your loan is approved. If you need a loan to grow your business, purchase inventory or equipment, tide you over because your business is seasonal, or deal with short-term cash-flow problems, explain the circumstances in detail. The bottom line is that the lender must see that your loan request makes sense. A loan should set your business up for success and allow you to pay it off down the line, not simply keep a struggling business afloat for a little while longer.

2. How will the loan help your business succeed?

It’s an unfortunate reality that many businesses fail, which is why you need to prove that your business is uniquely positioned to succeed. You also need to show why the loan will allow you to be even more competitive and effective. There’s no point in investing in properties or vehicles that won’t make a meaningful impact on the bottom line, so be prepared to explain why a particular investment will give you an advantage in the marketplace. Make sure your answers are as specific as possible.

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3. What is the size and length of the loan needed?

Do your math carefully and answer this question as realistically as possible. You want to make sure that your business has the capital it needs to grow and succeed, but you also want to keep the loan as small as possible. While a sudden cash infusion is great, you’ll soon start to feel the pressure of regular repayments. If your business is established and you can make the monthly payments on a large, long-term loan, that’s one thing, but the bank will likely require collateral. Do you own a home, and are you willing to possibly risk it? For many small businesses, an intermediate-term loan—lasting less than three years—is a safer option.

4. What types of insurance do you have?

Lenders have coverage requirements, and you must meet them. Bring proof of insurance and coverage limits. One caveat: a bank or credit union may require a small business owner to also take out a life insurance policy naming the bank as beneficiary if the loan is outstanding at the time of death.

5. What about your personal finances?

When small business owners take out loans, they can expect to have to personally guarantee payment. You’ve provided the bank with your company’s financial statements and tax returns, but for a small business loan, you’ll also need to submit information on your personal assets and liabilities. This would include your mortgages, car loans, credit cards, bank accounts, brokerage accounts, and retirement funds. If the business is a partnership or has more than one owner, everyone must comply.

When you’re in need of business financing, Citadel can help. We supply funding for various business and commercial needs at competitive rates and with low fees. Contact Citadel today for all your business capitalization requirements.

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